Executive Summary
Procurement performance is often measured primarily through hard savings — negotiated cost reductions that directly impact the bottom line. While this metric is important, relying on it exclusively creates an incomplete view of procurement’s contribution to enterprise value. It overlooks cost avoidance, demand management, risk mitigation, and value delivered through supplier innovation and operational improvements. As a result, procurement functions may be undervalued or incentivized toward short-term savings at the expense of long-term outcomes.
For procurement and supply chain leaders, this narrow measurement approach creates misalignment with broader business objectives, particularly in areas such as resilience, continuity, and total cost of ownership. It also limits the ability to communicate procurement’s full impact to finance and executive stakeholders, especially when avoided costs or strategic interventions do not translate into immediate, visible savings on financial statements.
The paper, Cost Avoidance vs Hard Savings: How to Better Measure Procurement’s Impact, examines the distinction between cost avoidance and hard savings, and explains why both must be incorporated into a more comprehensive performance framework. It outlines how procurement can redefine value by capturing a wider range of contributions, including risk reduction, process efficiency, and demand optimization.
It also addresses the importance of aligning procurement metrics with enterprise financial models to ensure credibility and consistency in reporting. By establishing clear definitions, methodologies, and governance, organizations can better quantify procurement’s impact and support more informed decision-making.
This paper provides a structured perspective on how procurement leaders can evolve performance measurement to reflect both realized and avoided costs.
Read the paper now.
FAQs
Hard savings capture realized cost reductions but exclude cost avoidance, risk mitigation, and efficiency gains, leading to an incomplete assessment of procurement’s total value contribution.
Organizations should include cost avoidance, demand management, risk reduction, and supplier-driven improvements to reflect procurement’s broader impact on total cost and business performance.
Procurement should standardize definitions, align methodologies with finance, and ensure savings reporting reflects how costs are recognized in financial statements to maintain consistency and credibility.